The equity segment of the Nigeria capital market in the second quarter of this year witnessed low performance despite the gains it recorded. In this report, AMAKA IFEAKANDU writes on the factors that weighed down its growth.
Chief Executive Officer of NSE, Oscar Onyema
The nation’s equity market recorded lower performance in the first half of 2019, despite the seeming rebound in the last trading days of June as bargain hunters repositioned their portfolios for the end of quarter window dressing.
Although the listing of the MTN Nigeria Communications on the NSE and trading account balancing, especially by fund managers ahead of the expected second quarter earnings reporting season and second half economic dynamics increased market activities, but failed to save the market from sinking.
Market capitalisation of listed equities closed on positive trend, gaining N1.485 trillion or 11.245 per cent to N13.205 trillion from N11.720 it opened for the year.
The NSE All Share Index within the same period declined by 1463.63 basis points or 4.656 per cent to close at 29966.87 points.
Interestingly, trading activities for the half year started on a negative note in January which was characterized by volatility and mixed sentiment as selling pressure dominated the period, after the share prices of blue chips stocks suffered losses. The mixed performance experienced in the first quarter was extended to the second quarter as the bear market lingered into April and June.
An analysis of the transactions within the reviewed period showed that in the month of January , market Capitalisation dipped by N326 billion or 2.78 per cent to close at N11.394 trillion from N11.720 it opened for the year, while the NSE ASI depreciated by 873.30 basis points or 2.78 per cent to close at 30557.20 points from 31439.50 points it closed December 2018.
On the contrary, the month of February witnessed positive trend as value of equities and index gained N434 billion or 3.78 per cent and 1162.80 points or 13.80 per cent respectively. But transactions in the month of March returned to bearish note with market cap dropping by N156 billion or 1.31 per cent to N11.672 trillion while index went down by 677.28 or 2.135 per cent to 31041.42 points. Also in the month of April, equity segment of the Nigerian Capital Market sheds N714 billion or 6.12 per cent to close at N10.958 trillion while the Index went down by 1881.68 basis points or 6.06 per cent.
Trading in May
The trading in the month of May took different direction as the NSE ASI increased by 1909.63 while equity value appreciated by N2.726 trillion or 24.87 per cent to N13.684 trillion.
For the month of June, the market loss N479 billion or 3.50 per cent to N13.205 trillion from N13.684 trillion closed in the previous month. The NSE All Share fell by 1102.50 basis points or 3.54 per cent to close at 29966.86 points from 31069.31 reported the beginning of the month.
The market’s sectoral indices performance for the period was bearish, except for the NSE Premium Index that closed higher, chalking 9.17 per cent, due to the listing of MTN Nigeria in the index. The NSE Consumer Goods and Oil/Gas indices led the decliners by 16.89 per cent and 16.21 per cent respectively.
Low capital stocks
Despite the state of the market, low capital stocks dominated the best performing equities in terms of capital gains during the period under review. A total of 27 stocks closed higher with 14 of them appreciating in value above 10 per cent.
The C &I Leasing Plc was the top best performing stock, increasing by 214.61per cent to close at N5.60 kobo, Dangote Floor followed with a gain of 165.15 per cent to N17.50 kobo, Thomas Watt added 82.61 per cent to N0.42 kobo, Chams Plc grew by 45.00 per cent to N0.29 kobo, Caverton improved by 33.85 per cent to N2.57 kobo.
On the contrary, more than 82 stocks were on the worse performing table dominated by medium cap and blue ship stocks that suffered losses due to prolonged negative market trend and dwindling earning power.
Goldlink Insurance topped losers chart in the first six months of this year , declining by 62.26 per cent to close at N0.20 kobo, Resort Savings and Loans trailed with a loss of 60.00 per cent to close at N0.20 kobo, Academy Press also went down by 46.00 per cent to N0.27 kobo, PZ Cussons sheds 42.28 per cent to N7.10 kobo while International Brewery down by 41.90 per cent to N18.30 kobo against N30.50 kobo it opened for the year.
Capital market operators and financial analysts who spoke in separate interviews on the market performance in the first half of this year said that high interest rate, insecurity and weakening income levels of Nigerians impacted negatively on the equities.
They also said that investors negative sentiment ahead of 2019 elections, capital flow reversal given higher interest rate in United States among others discouraged investment in the capital market.
They also argued that the weak regulatory machinery of the market also worsened the situation with lack of supervisory board for the Securities and Exchange Commission (SEC). They stated that the recent inuaguration of SEC board gave capital market regulator more power to introduce other policies that would bring positive impact in the market
Commenting on the performance of the market within the period under review, the Chief Research Officer, Investdata Consultung Limited, Ambrose Omorodion said the continuing slide in investor confidence in the nation’s economy and weak market fundamentals have also reflected in the performance pattern before and after the 2019 general elections.
He said the situation has not been helped by the leadership style of the current administration, adding that things worsened by the delay in constituting a cabinet one month after the inauguration of his government for the second term of four years and four months since the presidential election in February.
Lack of economic direction
He said the wait-and-see attitude adopted by investors was not unexpected, because there was lack of economic direction, weakening indices in the face of rising insecurity and unfriendly business environment with policy summersaults by the government and its agencies which continue to hinder effective recovery.
He said the post-2019 election political environment which is weighing in on the nation’s stock prices, forced them to hit their 52-week low, despite the resistance in May due to the artificial rally triggered by the listing by introduction of MTN Nigeria. This helped to increase trading activities, creating opportunity for the month of May to become the second to close higher after the February price rally as smart money took last-minute position ahead of the presidential election, amidst safe bet on the outcome. He said that investors, however, exited immediately results of the poll went against their expectations.
Borrowing costs remain high
He stated that even the decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to cut the benchmark Monetary Policy Rate (MPR) by 0.5 per cent from 14 per cent in first quarter has not yielded the desired result, as the economy is yet to feel the impact at a time borrowing costs remain high with banks preferring to invest their funds in government securities with juicy returns.
Also speaking, Managing Director APT Securities and Funds Limited, Malam Garba Kurfi said the Capital market did not do much in terms of Volume and Value for the half year ended 30th June, 2019 compared with the previous year.
He said the poor performance has to do with the shifting of Foreign Investors from Equity market into Bond and Treasury Bills, and available data showed that FMDQ OTC market have done better within the period compared with the previous year.
He, however said that some investors adopted wait and see attitude because of the nation general elections and other political Risk associated with election.
He stated that the hike in Interest rate in USA and other Developed markets also impacted negatively on the local equity market
An economists, Mr Iheanyi Nkwoka said the capital market did not perform well in the first half of this year following investors fear for political risk. He said though the listing MTN Nigeria helped to some extent to increase activities but could not go far to bring growth in the market.